Why You Might Need California Special Needs Trusts

Trusts are very valuable estate planning tools that provide a way to hold and manage assets for the benefit of your loved ones. You have the opportunity to include your own instructions as to how the property should be distributed and under what circumstances. A trust is an especially valuable tool if you have a loved one with special needs. California special needs trusts are a particular type of trust used just for this purpose. If you are considering whether you need to establish a California special needs trust, here is what you need to know in order to make the decision.

What is a California special needs trust exactly?

The goal of a special needs trust is to provide a plan or set of instructions for the future care of someone with special needs or a disability. Future care needs can include medical care, general personal care, financial support, and safeguarding of government benefits. The two major components of a special needs trust are protecting eligibility for current or future government benefits and ensuring that if something happens to the primary caregiver, the beneficiary will still be provide for.

Two types of California special needs trusts with different purposes

There are basically two types of special needs trusts and each one has a somewhat different purpose. The General Support Special Needs Trust is typically utilized as the main source of financial resources for someone with special needs. On the other hand, the Supplemental Care Special Needs Trust is seen more as a secondary source of financial resources, to be used when government benefits have been exhausted.

What does “special needs” care refer to in California?

The term “special needs” is a comprehensive term. It basically refers to medical treatment, health-care services, and other services the purpose of which are to increase the beneficiary’s quality of life. California special needs trusts can also be used to support daily living activities, respite care for the primary caregiver, living arrangements, required renovations to the beneficiary’s home, or many other things.

Creating California special needs trusts

A California special needs trust can be created in one of two ways. The trust can be established during the caregiver’s lifetime, a so-called “inter vivos” trustor, it can be established through a provision in the caregiver’s will or trust to be created at their death, a so-called “testamentary trust”.

Who should be the trustee of a special needs trust?

In most cases, the person who executes the trust document (the grantor) names himself or herself as the trustee in order to maintain control over the trust property. This is because the grantor is the typically the caregiver. The grantor/caregiver must also select someone to serve as successor trustee in the event that the caregiver is no longer able to serve at any point for any reason. This need can arise for several different reasons, such as the death or incapacity of the trustee or if the trustee has to resign for any reason.

Ways to fund a special needs trust

Usually, a trust that is used for special needs is funded by a parent or relative of that person with special needs. This is known as a “third party” trust, as another person’s assets are used to create the trust. In situations where the trust is funded by the beneficiary’s own assets, that type of trust is referred to as a “self-settled” special needs trust. Under federal law, Medi-Cal must be reimbursed for benefits paid when the beneficiary passes away if there was a self-settled trust. For this and other reasons, is preferable to create a third party trust if that option is available.

A special needs trust can also be funded as a pooled trust, which means the funds of several different beneficiaries are pooled together, managed and invested on behalf of all beneficiaries by a non-profit organization. There are certain advantages to using this type of funding method, so discuss your options with your California trust attorney.

A special needs trust can be funded with cash

A special needs trust can be funded with nearly any type of asset, including real estate, securities, and personal property. But, cash is typically the best option when it comes to paying for items not provided by SSI or Medi-Cal. One way to handle this is to include provisions in the trust that give the trustee the authority to sell certain property in order to liquidate that property for cash.

Download our FREE estate planning checklist! If you have questions regarding California special needs trusts, or any other estate planning needs, contact the Northern California Center for Estate Planning and Elder Law for a consultation, either online or by calling us at (916) 437-3500.

Timothy P. Murphy is an estate planning and elder law attorney whose practice emphasizes helping people to build, preserve and pass on their wealth. He works with his clients to accomplish their goals while avoiding unnecessary court proceedings and minimizing or eliminating exposure to death taxes.

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